Missed opportunity to reduce money-transfer fees and to help tackle inequality worldwide - Finance Watch
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FINANCEWATCHPOLICYBRIEF
March 2018
Review of EU’s regulation
on cross-border payments
Missed opportunity to reduce
money-transfer fees and to help
Photo by Christine Roy on Unsplash
tackle inequality worldwide
By Olivier Jérusalmy
Market inefficiency, abuses of dominant position, illegitimate high costs, partial supply,
inadequate services for migrants are the most visible elements of a never-ending list of
issues affecting remittances market in Europe: What makes this market so disconnected
to people's needs? How can competition grow in a market where dominant companies impose
their rules? How can policy makers correct these dysfunctions?
All these issues are well known, well documented and the negative impacts are huge for
the 35,1 million migrants who live in the EU-28.1
Not only are migrants not particularly financially included in the EU countries, but also
the money they send to their families, to support their low living standards and economic
development, are reduced on average by more than 7,2% of the total amount. To make things
clear, it is considered than 3% is a fair and sustainable price for the money transfers industry.2
The lack of competition in the market allows money transfer operators to price their services
over the threshold necessary to cover their total costs. The 4,2% over-pricing equals
US$3,6 billion per year that do not reach families' wallets: indeed, US$ 84,9 billions
have been sent by the migrant workers established in EU-28.3 By comparison, the EU-28 has
provided in 2016, for the European Civil Protection and Humanitarian Aid operations (ECHO) a
budget of US$1,9 billion (just about 53% of the over-pricing amount).4
In the light of these figures, it proves to be a missed opportunity that the European
Commission chose not to cover money transfer from the EU to non-EU countries in
its proposal for a reviewed Cross-border payments Regulation (EC) No 924/2009,
as announced on 28 March 2018. As such, it will not have a positive impact for
migrants, nor for their families in non-EU countries.
FINANCEWATCHPOLICYBRIEF – MARCH 2018 1
Facts and figures
1. European countries involved
• The 45 countries of Continental Europe include 26 sending countries, with an annual gross domestic
product (GDP) per capita above US$20.000 and the Russian Federation. These 26 countries5 include
18 EU-member states;
• Therefore, 19 are European receiving countries, with an annual GDP per capita below US$20.000.
These 19 countries include 10 EU-member states6.
2. Remittances flows and sizes
• In 2014, migrant workers living in all 45 European countries sent home over US$109,4 billion to their
families. One third of these flows (US$36.5 billion) went to the Balkans, the Baltics and Eastern Europe,
and the other two-thirds (US$72.9 billion) went to developing countries outside of Europe (Africa, Asia,
Latin America and the Caribbean, of flows, remittance service providers present and the Near East).
• The EU-28 part of the US$109,4 billion is US$84,9 billion, 78% of the total.
3. Impact of these flows
• For 3 receiving countries in Europe, remittances inflows from Europe to GDP ratios are above 10 per
cent: Moldova (22%), Kosovo (17%) and Bosnia and Herzegovina (10%). This situation happens more
often with the non-European receiving countries: for example, Tajikistan (42 %), Somalia (50%);
• In receiving countries, the amounts sent are purchasing power with a direct impact on local trade
and financial infrastructures. Part of them is dedicated to business creation or development. As such,
remittances can be seen as one of the most important anti-poverty programmes;
• An estimated 150 million people worldwide benefit from remittances coming from Europe. In most of
the cases, remittances are a significant complementary income for families and represent, on average,
up to 40% of household income7;
• The European TOP 10 sending countries account for US$ 92 billion and represent less than 0.69 per
cent of their individual GDP8.
2 FINANCEWATCHPOLICYBRIEF – MARCH 2018
Why remittances remain so costly?
Identified causes
Before presenting more specific reasons, the major issue is the financial institutions’ and banks’ attitude
regarding migrants. The latter are not considered as real nor serious clients with specific needs of financial ser-
vices. Even if bankers get rid of this erroneous stereotype, they remain reluctant to develop dedicated services
for this part of the public, as they are considered as potentially dangerous (their identification can be challeng-
ing) and, above all, not profitable (they are poor forever).
That being said, a large range of factors have an impact of the costs of remittances. Many studies have deeply
analysed this issue which have led to a sound understanding of the issues.
Elements which increase the costs / the prices:
1. the level of the incomes of the senders and of the receivers: the costs increase with the level of their
income;
2. the market share of the bank: the prices increase with the size of the market share of banks;
3. the share of receivers who lives in rural area: the prices increase when this share increases.
Element which decrease the costs / the prices:
1. the market size (number of users) of a transfer corridor: the prices decrease as the size increases;
2. the level of effective competition: the prices decrease when competition increases.
How is the market supply structured in the TOP 10 European sending countries?
• Two dominant international companies: MoneyGram International (MG) and Western Union International (WU);
• Seven challengers, which increase their geographical covering: Ria International, Sigue, Skrill Small
World, Transferwise, completed with two companies with geographical specialities: Azimo (Eastern
Europe) and Remit2India.
In Europe, the market share of the specialised money transfers companies is 70%. They can have their own
license or develop partnership with banks or postal networks. The market share of banks in Europe is 25%, which
is the highest score worldwide. Postal networks exist in all 10 countries but have a significant activity in 3 of them.
What can be done?
Many barriers need to be removed before competition grows, here are some of the most recommended ones:
1. To progressively forbid exclusivity agreements and ease access to payment systems
Powerful money transfers companies impose exclusivity agreements. Exclusivity agreements limit access
to existing distribution network or payment systems. Therefore, a more competitive market condition,
including access to domestic payments infrastructures, should be fostered in the remittance industry.
2. To stop the financial exclusion of migrants because of de-risking practices
De-risking practices can be summarised as banks/financial institutions’ refusal to serve people or to
develop partnership with companies that might be involved in money laundering and financing terror-
ism. Risks can refer to identification issues, cash transfers, nature of transactions, political instability
or terrorist activities in the countries involved. Migrants are particularly affected by these de-risking
practices, at least in part because of identity difficulties.
3. To review and clean existing rules from measures which lead to competition distortion
Remittance services should be supported by a sound, predictable, non-discriminatory and proportionate
legal and regulatory framework, in relevant jurisdictions.
FINANCEWATCHPOLICYBRIEF – MARCH 2018 34. To guarantee appropriate governance and risk management
Remittances services should be supported by appropriate governance and risk management practices.
5. To increase transparency (cost comparison) and improve the current weak users protection
Database and comparison websites, minimal transparency standard, easy and consumer friendly dis-
pute resolution procedure are some of possible actions.
6. To increase access to relevant and accessible information for remittances users on new al-
ternatives, on new secured and costless tools, on their specific financial inclusion rights9 and benefits.
Poor improvements since 2008
It is true that some improvements have been measured since 2008, the figure below shows a very slow decline
of the average costs from G8 countries. Nevertheless, it is interesting to highlight the Russian average costs;
under 3% for years now.
Source: World Bank Group - Remittance prices worldwide - Issue n°15. October 2015, p.4
A light in the night: 2017 EU consultation on transparency and fees in
cross-border transactions
The EU Commission, which has to be seen as one of the actors involved in the United Nations Sustainable
Development goals, showed a reasonable interest in remittances practices within the EU-28.
Indeed, question 11 of their consultation referred explicitly to the goals set by the United Nations. The Sustaina-
ble Development goals contain a consideration of the costs of remittances.
Finance Watch as well as BEUC (The European Consumer Organisation) have underlined the major remaining
issues observed in the EU-28 as regard to high costs, lack of competition, the exclusive dealing arrangements
and the recent cases which involves large money remitters and the competition authorities in Mauritius10.
4 FINANCEWATCHPOLICYBRIEF – MARCH 2018A dramatic and constant lack of acts, of political commitment
As it has been already said, this major societal issue is tackled by a large range of worldwide institutions as well
as EU Commission and national authorities. Unfortunately, the United Nations Sustainable Development Goals,
along with G8 and G20 and its Global Partnership for Financial Inclusion (GPFI) and The World Bank and the
International Fund for Agricultural Development, structure their strategies and actions on the basis of voluntary
involvement of national governments. No binding rules, no penalties; just goodwill is required from countries'
representatives to reach ambitious targets.
Among other targets, “the target under Sustainable Development Goal 10 to reduce remittance costs to less
than 3 percent and ensure remittances can be sent at 5 per cent or less by 2030 require increased focus and
momentum by the international community.”
Considering the ambition of this goal, the EU Commission’s proposal on cross-border payments shows little
willingness to tackle the issue of remittances.
Finance Watch urges the EU Commission
• Develop a targeted EU strategy to ensure that migrants are not excluded and that they are
guaranteed access to a basic payment account;
• Investigate and remove competition barriers, including exclusivity agreements that limit access to
distribution and payment systems;
• Introduce a 3% cap on fees as part of a regulation on remittances designed to improve user
protection and ensure the proper functioning of the market.
Footnotes
1 On 1 January 2016, the number of people living in the EU-28 who were citizens of non-member countries was 20.7 million,
while the number of people living in the EU-28 who had been born outside of the EU was 35.1 million, in Eurostat, March 2017;
available on: http://ec.europa.eu/eurostat/statistics-explained/index.php/Migration_and_migrant_population_statistics/fr#Princi-
paux_r.C3.A9sultats_statistique
2 “The target under Sustainable Development Goals 10 to reduce remittance costs to less than 3% and ensure remittances can
be sent at 5% or less by 2030 will require increased focus and momentum by the international community.” See G20, 2017
Remittance Plans Overview, p. 1; available on: https://www.gpfi.org/publications/2017-g20-national-remittance-plans-overview
3 IFAD, “Sending Money Home: European flows and markets”, June 2015; available on: https://www.ifad.org/docu-
ments/10180/3594696/money_europe.pdf/5ac7733f-39e6-4b1b-a1dc-f7038b5caa0b?%20version=1.2
4 European Commission, “Annual report on the European Union’s humanitarian aid policies and their implementation in 2016”,
November 2017, page 9; available on: https://ec.europa.eu/transparency/regdoc/rep/1/2017/EN/COM-2017-662-F1-EN-MAIN-
PART-1.PDF
5 Andorra, Austria, Belgium, Cyprus, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Liechtenstein,
Luxembourg, Malta, Monaco, Netherlands, Norway, Portugal, the Russian Federation, San Marino, Slovenia, Spain, Swe-
den, Switzerland and the United Kingdom.
6 Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Kosovo, Latvia, Lithuania,
Poland, Romania, Slovak Republic and the former Yugoslav Republic of Macedonia Montenegro, Republic of Moldova, Serbia
and the Ukraine.
7 Frédéric Ponsot, “Transferts d’argent et inclusion financière”, rapport pour le Partenariat mondial du G20 pour l’inclusion fi-
nancière, FIDA et La Banque Mondiale. September 2015, p.19; available on: https://www.ifad.org/documents/10180/49e124bb-
fd6c-4c8d-90d6-da45825f6e5d
8 With the exception of the Russian Federation, 0.98 per cent of its GDP.
9 Right of access to a payment account with basic features, see Directive 2014/92/EU, Art.16, 17 & 18.
10 See article “Devant la Commission de la Concurennce: Western Union et Moneygram prennent des engagements”, published on
19 June 2017 in Le Mauricien; available on: https://www.lemauricien.com/article/devant-la-commission-la-concurrence-west-
ern-union-et-moneygram-prennent-des-engagements/; and Media release of the Competition Commission of Mauritius,
“INV029: Western Union and MoneyGram offer Undertakings to the CCM”, 13 June 2017, available on: http://www.ccm.mu/
English/Documents/Investigations/INV029-MR-Undertakings.pdf
FINANCEWATCHPOLICYBRIEF – MARCH 2018 5About Finance Watch
Finance Watch is an independently funded public interest association dedicated
to making finance work for the good of society. Its mission is to strengthen the
voice of society in the reform of financial regulation by conducting advocacy
and presenting public interest arguments to lawmakers and the public. Finance
Watch’s members include consumer groups, housing associations, trade
unions, NGOs, financial experts, academics and other civil society groups that
collectively represent a large number of European citizens. Finance Watch’s
founding principles state that finance is essential for society in bringing capital to
productive use in a transparent and sustainable manner, but that the legitimate
pursuit of private interests by the financial industry should not be conducted to
the detriment of society. For further information, see www.finance-watch.org
Finance Watch
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Tel: + 32 (0)2.880.0430
www.finance-watch.org
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